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TOKYO – Climate change is having an effect on the market capitalization of companies, as investors increasingly focus on decarbonization. On Tuesday, 137 global investors with $ 20 trillion in assets asked more than 1,800 companies to set science-based targets for reducing emissions. Those companies are the source of 25% of the world’s carbon emissions, according to CDP, a nonprofit group that coordinated the measure.
Investors, including France’s Axa and Japan’s Nikko Asset Management, acted because if companies don’t, those who put money into them will also pay a price. “Climate change presents material risks to investments, and companies that fail to set science-based targets run the risk of losing out and causing further damage to the global economy,” wrote Emily Kreps, Global Head of Markets de Capitales in CDP, in a statement. .
More and more investors are calling for action.
The California Public Employees Retirement System, a major US pension fund, announced in 2019 its commitment to achieving a carbon-neutral investment portfolio by 2050. Some investors have lobbied members of the board of directors of the company voting no on their appointments at the annual general meetings.
In equity markets, carbon emissions have influenced market capitalization.
According to MSCI carbon emissions data by company, the top 30 companies that reduced carbon emissions from 2014 to 2018 saw their market capitalization increase by 15% in September this year compared to December 2017. On the other hand On the other hand, the top 30 companies that increased their carbon emissions from 2014 to 2018 saw their market capitalization decrease by 12% during the same period.
An example of this type can be seen in the energy sector.
French oil company Total announced in May its goal of reaching net zero emissions by 2050. The company had already reduced its emissions by 9% in the four years to 2018, in contrast to Exxon Mobil, which saw emissions rise by 1 % in the same period.
German power company E. ON sold its fossil fuel power plants and is now moving to make a profit primarily from transmission lines. As a result, the company’s emissions fell 90%. In contrast, Canadian oil and gas pipeline company Enbridge has continued to invest in its pipeline business, leading to more emissions. In terms of market capitalization, E.ONs were up around 30% as of September this year compared to December 2017, while Enbridge’s were down 5%.
In the manufacturing sector, Siemens announced in 2015 its intention to become a carbon neutral company by 2030. In September, the company went public with the subsidiary Siemens Energy, which manufactures gas turbines and transmission equipment, which resulted in the removal of Siemens Energy from the consolidated Siemens business. Financial statements. Japan’s Hitachi has also pulled out of the gas turbine business and aims to be carbon neutral by fiscal 2030.
The Working Group on Climate-Related Financial Disclosures, created by the Financial Stability Board, recommended in 2017 that companies and investors develop consistent disclosures of climate-related financial risks. That helped investors realize that climate change is a direct risk to corporate earnings. Akemi Hatano, an analyst at SBI Security, notes that “many companies disclose carbon emissions, so it is easy for investors to compare, which is one of the reasons why carbon footprints influence share prices. “.
Investment is also flowing into clean energy companies like NextEra Energy, a US renewable energy company, NextEra Energy’s market capitalization surpassed that of oil giant ExxonMobil in early October. In Japan, the forward price-to-earnings ratio of Renova, a renewable energy company, exceeded 140.
And in the auto sector, EV maker Tesla’s share price is on the rise, while Toyota Motor’s is still sluggish, showing that many investors are betting on a rapid energy transition.
From 2014 to 2018, the total emissions of approximately 2,000 major companies around the world decreased by 5%. However, the amount for Japanese companies was only 1%, indicating that there is still a lot to do. Policies like cap and trade or carbon taxes can stimulate the energy transition, but the carbon tax in Japan remains low.
The European Union is considering a border tax on carbon, which would hamper Japanese companies in the EU market. The United States will implement a stronger clean energy policy if Democratic candidate Joe Biden wins the US presidential election. With more governments and companies fearful of climate change, Japan must accelerate its own decarbonization efforts.
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